Arden-Mayfair, Inc. v. Louart Corp.

Effective January 1, 1977, California required certain corporations that were not incorporated in California to elect directors annually and to use cumulative voting in shareholder elections. Specifically, the new California law applied to corporations whose stock was not traded on a national stock exchange and that had sufficient contacts with California. Arden-Mayfair, Inc. (Arden) (plaintiff) was incorporated in Delaware. Arden’s certificate of incorporation prohibited cumulative voting, and Arden’s board was classified (and directors thus were not elected annually). California-based Louart Corporation (defendant) was a substantial shareholder in Arden. On December 30, 1976, Louart advised Arden that it believed that Arden was required to comply with the new California law. Citing Delaware law and the United States Constitution, Arden responded by seeking a declaratory judgment against Louart and others (collectively, Louart) in Delaware Chancery Court that Arden’s claims and contentions were valid and that Louart’s contrary contentions were invalid. Louart removed the case to federal court, asserting that federal-question jurisdiction existed. Arden moved to remand the case to state court on the ground that there was no federal-question jurisdiction because federal-question jurisdiction would have been lacking if Louart had sued Arden to compel compliance with the new California law.